The Reserve Bank of Malawi (RBM) has advised financial market dealers to be innovative to help boost balance of payments (BoP)—the difference in total value between payments into and out of a country.
In view of this, the central bank’s principal economist responsible for national accounts and external sector Mark Lungu has urged dealers to come up with financial instruments that could attract foreign investors to invest in the financial market, but at the same time be mindful of the inherent risks.
“They [dealers] could come up with diaspora bonds that could provide an avenue for people in the diaspora to tap from and invest. Our capital account is suffering because of lack of innovation,” he said on Saturday in Mangochi on the sidelines of Financial Market Dealers Association (Fimda) Annual Lakeshore Conference.
Lungu, however, warned that innovation is sophisticated and complex and could bring with it inherent risks that have to be managed.
He said the “financial market can oil the engine of growth, but can also quickly run down an economy” if it is not managed properly.
“There is need for discipline in the industry in terms of managing the risks. There is need for thoughtful diversification strategy and proper balancing of risks,” he said.
In his presentation, Lungu said the country has over the years not attracted adequate foreign direct investment (FDI)—an investment made by a company or individual in a one country in the form of either establishing business operations—over the years due to the country’s economic situation.
Lungu also bemoaned the low levels of remittances—the transfer of money by a foreign worker to home country—which are at $30 million (K22 billion) annually, but said their estimates are that they could reach $70 million (K51 billion) based on the number of citizens abroad.
The conference was held under the theme Balance of Payments: Financial Markets Innovation.
In his speech, Fimda president Grey Kazima noted that the theme resonated well with the job of dealers in terms of the state of affairs on BoP and how relevant the financial dealers can be to that situation.
He said Fimda registered successes such as the establishment of an examination centre for dealers to enhance the certification.
“But the challenge is that we have an interbank market that is skewed towards a few banks, and in terms of showing two-way market quotes, that is not happening,” he said. n